The American business landscape is rapidly changing. Many people are turning to self-employment as a means of earning income and doing something that they love. There is a great opportunity today for someone to be their own boss and start a company even if they do not have a great deal of money. However, being self-employed can be quite challenging when it comes to taxes. That is why we have composed a listing of tax deductions that smart self-employed people can not afford to miss.
Starting Up
Even though starting up a business is easier than ever before, there are still costs associated with any new venture. Luckily, You can deduct up to $5,000 of all the costs related to starting a new business if your business was started this tax year. This can include things like market research and advertising for your business launch.
Insurance
A self-employed person can deduct the premium of various types of business insurance. This can include:
- Fire
- Theft
- Worker’s Compensation
- General Liability
Vehicle Expenses
So, if a self-employed person uses their vehicle for 100 percent business use and the vehicle is in the company’s name, then the car or truck is fully deductible.
If the vehicle is in your personal name and used partly for personal, partly for business use, then there are two ways to calculate the deductions
Track your actual car expenses, including gas, maintenance, insurance, and depreciation, and deduct a percentage supported the amount of business miles you drive.
Deduct a typical rate on each “business” mile driven for the year. For 2020, the quality mileage rate is 57.5 center per mile driven for business use, down from 58 cents per mile in 2019.
No matter which method you select, you’ll got to keep track of what percentage business and private miles you drive. You can use a manual log or an online app.
If you have a fleet of business vehicles, which is usually five or more, you must use the actual expense method.
Mileage
The Internal Revenue Service allows you to deduct mileage that is used for business purposes.
They are as follows:
- 58 cents per mile for business miles driven, up from 54.5 cents for 2018
- 20 cents per mile driven for medical or moving purposes, up from 18 cents for 2018
- 14 cents per mile driven in service of charitable organizations, unchanged from 2018
Remember to add all business parking fees and tolls paid during the year, as these are deductible too.
Business Travel Expenses
The Internal Revenue Service defines a business expense as the ordinary and necessary expenses associated with traveling away from your home for your business, profession, or job. These expenses cannot be extravagant or used for personal purposes.
The following are valid business expenses:
- Travel by airplane, train, bus, or car between your home and your business destination. (If you’re provided with a ticket or you’re riding free as a result of a frequent traveler or similar program, your cost is zero.)
- Fares for taxis or other types of transportation between the airport or train station and your hotel, the hotel, and the work location, and from one customer to another, or from one place of business to another.
- Shipping of baggage, and sample or display material between your regular and temporary work locations.
- Using your car while at your business destination. You can deduct actual expenses or the standard mileage rate, as well as business-related tolls and parking fees. If you rent a car, you can deduct only the business-use portion for the expenses.
- Meals and lodging.
- Dry cleaning and laundry.
- Business calls while on your business trip. (This includes business communications by fax machine or other communication devices.)
- Tips you pay for services related to any of these expenses.
- Other similar ordinary and necessary expenses related to your business travel. (These expenses might include transportation to and from a business meal, public stenographer’s fees, computer rental fees, and operating and maintaining a house trailer.)
Advertising
Self-Employed people should keep in mind that all advertising costs are fully tax-deductible.
This can include the following
- The cost of printing business cards, flyers, and mailers
- Social media advertising like Facebook ads
- Promotions at conventions and trade shows
- The cost of advertising agencies
- Television and radio advertising
- Employing freelancers
You can also deduct all commissions paid to non-employees for sales and marketing purposes. This can include payments to individual sales reps, or marketing channels and a platform like Amazon.
Any Labor That is Contracted
This includes all fees paid to independent contractors. If you hired a graphic designer to style a logo for you or contracted with a developer to make your website, their fees are fully tax-deductible.
If you paid a contractor $600 or more over the course of the year, you’ll even have to file Form 1099-MISC.
Depreciation
If you have a business asset that is expected to last more than one year, you can depreciate the cost of the asset over its life rather than deducting the cost of the asset the year that you purchase it. Depreciation is fully deductible. Examples of assets that can be depreciated are:
- Cars
- Furniture
- Technology like computers
- Improvements to leased property
You can not include inventories, stock-in-trade, and land cannot be as a depreciated tax deduction.
Employee benefits
If you have employees and provide health insurance and other benefits then you can fully deduct the costs of those benefits.
This Is Just the Tip of the Iceberg
Join us for the second part of this series to find out about even more fantastic tax deductions for the self-employed.
Getting A Tax Resale Certification Is One Of The Best Things You Can Do As An Entrepreneur
As a self-employed person, getting a tax resale certificate can really save you money on taxes.
In short, a tax retail certificate allows you not to pay sales tax on items that you plan to resell. This can also apply to supplies that are going to be used in products that you will resell, such as wood for a cabinet.
However, the process can be difficult and the rules are different for each state. That is why TaxResaleCertificate should do all the hard work for you. We can make sure that you get all the advantages of a tax resale certificate without having to deal with the hassle of government red tape. Let us handle the hard stuff so you can proceed to run your business with confidence. Make sure you check out our second blog in this series so you can learn even more valuable information about tax resale certificates.